Church declined to save Kukui Gardens

A letter to the bishop opened one man's fight against Catholic financial interests

On the eve of the directors' vote to sell the affordable-housing complex Kukui Gardens to a California developer, Wallace Ching wrote a letter to Bishop Clarence Silva begging him to intervene in the sale to prevent "a grave injustice."

Ching, a lifelong Catholic and one of the Kukui Gardens directors, wrote that as "a member of your flock ... I appeal to you, Bishop, to use your good office to prevent the Marianist Center and St. Francis Healthcare System from supporting any action (using their votes on the Kukui Gardens board) that may result in the loss of homes to 857 low and moderate income families."

In a March 26 letter responding to Ching, Silva declined to intervene in the controversial sale of the rental housing complex on the edge of Chinatown to San Francisco-based Carmel Partners for $130 million.

The letters, recently obtained by the Star-Bulletin, shed light on Ching's struggle to preserve the housing complex, which his father built to help the poor, against the board's vote and the interests of the Catholic organizations that his father handpicked to steward the complex.

The Kukui Gardens board is comprised of 15 members. Five are from the Clarence T.C. Ching Foundation, which formed Kukui Gardens Corp.; five are from St. Francis; and the remaining five are from the Marianist Center, which operates Chaminade University and Saint Louis School, both Catholic schools in Kaimuki.

In trying to resolve his conflict, Ching first appealed to the spiritual leader of his faith, and when that failed he resorted to the judicial system. He filed a lawsuit last month alleging conflicts of interest that could potentially block the sale.

In his March 24 letter to the bishop, who serves on the board of St. Francis, Ching wrote, "Due to trust provisions, these organizations (St. Francis and the Marianist Center) stand to gain substantial financial benefits from the sale of Kukui Gardens. While I have no doubt that these proceeds would be put to worthy use, I nonetheless believe it would be unseemly and wrong for Church-related entities to benefit at the expense of needy families."

Silva could not be reached for comment. But Father Marc Alexander, the vicar general, said on behalf of the diocese, "The diocese has no role in the decision-making process, and hasn't seen itself in a position to defend or to explain the board's decision. We have stayed back. And we hope we keep the tenants' physical and emotional needs primary."

A spokesman for Kukui Gardens Corp., the nonprofit that built and operates the complex, said "none of the money from the sale of Kukui Gardens is earmarked for St. Francis or Chaminade or Saint Louis. Everyone will have to go through an application process that will be open to a wide spectrum of charities in the community."

In his letter to Ching, Silva wrote that he understood "the intention is to sell Kukui Gardens to an entity that would continue to provide affordable housing to current residents."

"I am not convinced" that a sale "would in fact be disadvantageous to the Kukui Gardens families," he wrote. The Bishop concluded, "I will try to follow the matter closely since it is important that we all do what we can to see that local families are able to afford suitable housing on our islands."

The sale to Carmel is subject to approval from the federal Housing and Urban Development agency, because Kukui Gardens was built 36 years ago with a 40-year Federal Housing Authority guaranty to secure a $16 million loan from the Ford Foundation. HUD has oversight of Kukui Gardens until 2011, and Carmel has said it will keep rents affordable until then. However, Kukui Gardens has also asked HUD for permission to prepay the mortgage now rather than in 2011. If HUD grants permission, it could lose control over rents and decision-making over the buyer.

In addition, it could loosen an HUD restriction that would have put the proceeds of a sale into a trust to be used for affordable housing, rather than into the hands of the Ching Foundation to distribute at its own discretion.

Ching alleges in his lawsuit that the Marianist Center, Saint Louis, Chaminade and St. Francis and their affiliates "were looking forward to a sale of the Kukui Gardens project to enhance their portfolio ... given their need for money despite receiving millions of dollars in donations from the (foundation) in the past."

Those donations included $1.25 million for the Clarence T.C. Ching Cardiac Center at St. Francis; about $1 million for the as-yet unbuilt Clarence T.C. Ching Fine Arts Center at Saint Louis; and at least $250,000 for the St. Augustine Scholarship Fund for students attending Catholic schools.

Bob Nakata, a Methodist minister and activist who has helped organize Kukui Gardens residents, criticized the role of Catholic organizations that voted for the sale, which he believes conflicts with their mission to help the poor.

"These organizations have done very good, very valuable work in the community, but in this instance it feels like they could exert moral authority on the events surrounding the sale of Kukui Gardens but have chosen not to."

Nakata said that Kukui Gardens, the Ching Foundation, St. Francis, Chaminade and Saint Louis deserve to profit from a sale, "but not at the expense of making people homeless."

Tenants are concerned that a for-profit owner will raise rents to drive out residents and clear the way for luxury housing.

Drew Astolfi, a leader of a nonprofit activist group Faith Action for Community Equity, which has organized Kukui Gardens tenants, said that at a price of $130 million the debt service payments are higher than what the current rents bring in each month. "It's just stark mathematics," he said.

Astolfi said that at about $80 million, the existing rent levels could service the debt, and needed repairs could be made. Any higher, and the owner will need more income from the complex to carry costs.

"Carmel or any for-profit would have to redevelop the property" to get more income, said Astolfi.

Christopher Beda, Carmel's chief investment officer, could not be reached for comment.

On April 27 the directors of Kukui Gardens voted to sell the complex, home to about 2,500 tenants, to Carmel. Wallace Ching was the only director to vote against the sale.

Last month, Ching sued Kukui Gardens and the other trustees, including his brother, Lawrence, alleging their strong ties to the "church-affiliated" Marianists, Chaminade, Saint Louis and St. Francis motivated the trustees to vote for the sale, in violation of their "higher fiduciary duty to protect the assets of the charitable trust."

Ching's suit alleges that the trustees representing the foundation have conflicts of interest that drove them to vote for the sale to benefit St. Francis, Chaminade and Saint Louis.

For example, Lawrence Ching, a graduate of Saint Louis, also serves on the board of Chaminade and a St. Francis affiliate. Trustee and director Raymond Tam is a Saint Louis graduate and board director. Kukui Gardens director Peter Ng, another St. Louis graduate, is a director of the Marianist Center and has been named as a successor trustee to the Ching Foundation. Paul Loo, who recently resigned as a trustee and director and supported the sale, also serves on the Chaminade board.

Wallace Ching, a Saint Louis graduate, also served on the Marianist board until he resigned, before the vote to sell the complex.

Speaking to Kukui Gardens' residents in March on behalf of his sister Jocelyn Arakaki and himself, Wallace Ching questioned the sale. "We do not believe that my father would have agreed to the sale under these circumstances," he said. "When rents are skyrocketing out of the reach of more and more families ... and rising homelessness is a major social challenge ... it is wrong to take an action that would further reduce the supply of low- and moderate-income housing in Honolulu."